Banks and retailers push FTSE lower

Europe's largest supermarket group lost 3.1 per cent to 407p after sales came in short of expectations. While like-for-like sales rose 3.1 per cent in the six weeks to January 5, this was below analysts' forecasts.

"Tesco is a growth company and a slowdown in growth will perturb the market," said James Anstead at Citigroup.

Rival J Sainsbury, by contrast, was one of few risers, up 1.8 per cent to 386p, as Goldman Sachs added it to its "conviction buy" list.

Sreedhar Mahamkali, analyst, wrote: "We believe Sainsbury's share price sufficiently captures the recent slow down in top-line growth, given valuation on most metrics now look attractive.

"Sainsbury is the only company in our universe where the property value of £8.6bn is higher than its current EV [enterprise value]".

In the wider market, the FTSE 100 closed 3.1 per cent lower at 6,025.6, while the mid-cap FTSE 250 lost 2.7 per cent to 9,765.8.

US indices fell in New York. The Dow Jones Industrial Average was down 1.7 per cent by midday in New York. Sentiment on both sides of the Atlantic took a knock from news of losses at Citigroup in the fourth quarter, while weak retail sales data further undermined confidence.

Kingfisher fell 6.8 per cent to 122p as JP Morgan downgraded the owner of B&Q from "neutral" to "overweight".

Burberry lost 16.4 per cent to 406½p after a disappointing trading update from the clothes retailer.

Banks were hurt by Citi's results, and Royal Bank of Scotland shed 5.9 per cent to 392p, while Alliance & Leicester lost 4.8 per cent to 717p and HSBC slid 4.8 per cent to 777p.

A downgrade from Goldman Sachs dragged FirstGroup, the transport company, 5.9 per cent lower to 634½p.

Oil stocks dragged on the wider market as crude prices continued to move further away from the $100 per barrel mark.

BP fell 4 per cent to 573.29p and Royal Dutch Shell lost 3.2 per cent to £20.04.

Taylor Wimpey lost 7.7 per cent to 159p as the housebuilder said the UK housing market was "subdued" in the second half of 2007 but said prices remained stable.

In the FTSE 250, Northern Rock slumped a further 16.1 per cent to 69¼p as the stricken lender's extraordinary general meeting kicked off in Newcastle.

Lower down the market, Regent Inns jumped 27.3 per cent to 22¾p after the pubs operator said it had received a takeover approach.

However, i-mate slumped 38.1 per cent to 20¾p as the hand-held device group warned on profits and said it was "reviewing its strategic alternatives".

The FTSE 100 ended sharply lower on Tuesday as grocer Tesco provided further evidence of a retail spending slowdown.